More important, however, is the approach we employ in allocating these funds. Our research methodology is fundamentally one that moves from the outside-in. Our projects always start with a well-defined customer need. Importantly, though, they need not always solve the exact problems we define at the outset -- the intrinsic serendipity of research requires us to be inventive in developing our solutions. An example of this effect was our work in developing a water base multicolor paint that was to be sprayed from an aerosol can. At the time we initiated the project, only solvent-based multicolor could be sprayed in this way.

       While we did develop a product that was entirely water-based, we were unable to design the product so that it could be sprayed from an aerosol can. The product, however, had numerous advantages over existing water base multicolor that built a case for commercialization. We developed a simple spray tool and spray gun that uses a wet/dry vac as an air source. These devices allow homeowners to apply their own multicolor paints that previously had to be applied by a painting contractor.

        Today, we offer this product directly to consumers through a branding agreement with Maurice Villency, a prominent furniture designer in the New York metropolitan area.

Is a niche strategy relevant to your business?

Niche players in the paint industry should consider focusing on one or more of three strategies; specialty product development, environmental leadership, and systems economics ownership.

     Specialty product development: The need for specialized industrial coatings companies will continue as long as middle market companies demand specialized products. It is not that the giant coatings companies lack the ability to formulate specialized products; such companies could likely duplicate most offerings, were they to devote the necessary resources to the endeavor. But, they are constrained by the economics of their business, which dictate that if a customer purchases less than $200,000 of paint per year, they can offer only limited customization of their standard product mix. Such is not the case with a niche manufacturer. In these situations, the massive scale of large players is a weakness from the customer's perspective.

      Environmental leadership: Too often, little attention is given to the needs of the small industrial coatings manufacturer when the government considers new regulations, particularly with respect to the environment. We are probably the only industry that is forced to reformulate our products every 7 to 10 years to comply with changing VOC regulations.

       Systems economics ownership: Understanding the relative impact of a paint or coating on the retail value of a finished good provides a significant lever of opportunity for a small manufacturer. We estimate that the average cost of our coatings comprise only 1-2% of our customer's wholesale cost of the final product. This means that for every one million dollars of paint we sell, we affect one hundred million dollars of wholesale value. Even more significant, the added value to the consumer can be over ten times that cost: the selling price of unfinished wood furniture is 30% less that that of finished product, even though the finishing material costs only 2%.

       This strategy has benefits from a broader point of view as well. State governments should recognize that unequal regulation of coatings result in a much greater loss of manufacturing jobs than  traditional calculations suggest. Many industrial manufacturers have moved South not because of labor and utility costs, but because their suppliers decided to locate to these more favorable business environments.

                       Future prospects

While conventional notions of business strategy dictate that small manufacturing firms are destined for a bleak future, we believe that our experience suggests otherwise. To succeed requires a constant drive to recognize and adapt to changes in customer priorities and to develop new markets. The saying goes, I'm told, "When you're green, you're growing - but when you're ripe, you're rotten". That's never been truer than it is for small manufacturers in the paint and coatings industry.

THE AUTHOR

H. PETER TEPPERMAN is President of Seagrave Coatings Corp. He is also President of the New York Metropolitan Paint & Coatings Association, the local affiliate of the National Paint & Coatings Association.